Chapter 2 Flashcards
List six reasons why the state might intervene in a country’s economy by providing benefits. [1.5]
June 2020; Q2 (i)
- Redistribution
- Market failures
- Efficiency
- Inertia
- External pressure
- Moral hazard and vested interests
The government of Parthia wishes to encourage savings through employer-sponsored pension
funds. They currently offer no incentives to do so.
i. Explain what a behavioural incentive is, why it may be preferable to a traditional tax
incentive and provide an example other than automatic enrolment.
[2.5]
ASSA J2020; Q7(i)
ASSA J2020; Q7(i)
Behavioural incentives use principles of behavioural theory rather than financial incentives to encourage an outcome. [1]
It is preferable because:
* It can be simpler to implement and understand ✓✓
* Higher Participation Rates ✓
* It is typically cheaper ✓
* It works better ✓. For instance, defaults and nudges can help overcome procrastination or inertia✓, which are common barriers to beneficial behavior✓.
Example: changes to default options, nudges or reminders ✓✓
Define the term “consumption smoothing”. [1]
Consumption smoothing is about ensuring adequate access✓ to goods and services✓ as needed, including the ability to withstand shocks✓, such as health crises✓.
List reasons why a person may be unable to support themselves through working and earning a wage. [2]
Temporary sickness or injury ✓✓ Permanent disability ✓
Unemployment ✓
Too young to work ✓
Studying ✓
Caring for children or relatives ✓
Old age ✓
What are the two main tools individuals can use to smooth consumption, and provide an example of each. [4]
The first is by pooling their risks with others.✓✓ A classic critical illness (CI) policy✓✓ can be regarded as a vehicle facilitating pooling, where each insured individual pays premiums into the pool✓, and those who experience a critical illness event receive payments from the pool✓.
The second tool is through saving✓✓, where individuals reduce their consumption in good times✓, and save up resources✓ to ensure that their consumption does not need to fall too drastically when times are bad✓. A classic retirement fund✓✓ can be regarded as a savings vehicle, facilitating asset-based reallocations✓✓ that shift resources from periods when individuals can still work✓ to when they can no longer work due to old age✓.
When is pooling more efficient? [1.5]
In general, pooling is a more efficient way of smoothing consumption when:
* the probability of adverse experience is small✓✓ and
* the correlations between the risks occurring to individuals are low✓✓.
If the probability of adverse experience is large, or the correlation of risks across individuals is high, then pooling becomes less efficient than saving.✓✓
List the three main reasons for saving. [0.75]
- Consumption smoothing
- Precautionary saving
- Bequest motives
Define the term “Primary Care”. [3.5]
Primary care health professionals act as a first point of consultation✓ for all patients✓. Such a professional would usually be one of the following:
* A primary care physician✓, such as a general practitioner or family physician✓
* A licensed, independent allied healthcare provider✓, such as a physiotherapist, respiratory therapist, occupational therapist, speech therapist, or dietician.✓✓
* A non-physician primary care provider✓, or mid-level provider✓, such as a physician assistant or nurse practitioner.✓
Primary care health providers see a wide range of cases✓ and provide generalist care✓, typically in an out-patient setting✓. Depending on the nature of the health condition, patients may then be referred for higher levels of care.✓
Primary care is typically comprehensive✓ and includes preventative care✓ and chronic disease management✓.
Define the term “Secondary Care”. [3]
Secondary care refers to the healthcare services provided by medical specialists✓ and other health professionals✓, for example, cardiologists, urologists, and dermatologists✓✓✓. It includes acute care and skilled attendance during childbirth, intensive care, and medical imaging services.✓✓✓✓
Secondary care may be provided in or out of hospital.✓✓ In some countries, patients may be required to see a primary care provider for a referral before they can access secondary care,✓✓ while in others self-referral is possible.✓
Define the term “Tertiary Care”. [3.5]
Tertiary care is specialised consultative healthcare✓✓, usually on an in-patient basis✓ and referral from a primary or secondary health professional✓✓, in a facility that has personnel and facilities✓✓ for advanced medical investigation and treatment✓✓, such as a tertiary referral hospital or academic hospital✓✓. Examples of tertiary care services are cancer management, neurosurgery, cardiac surgery, plastic surgery, treatment for severe burns, advanced neonatology services, palliative care, and other complex medical and surgical interventions.✓✓✓✓
Define the term “quaternary care”. [0.5]
Quaternary facilities deal with very rare cases and experimental treatments.
Describe the locations in which the different levels of HC servives are provided. [2]
Primary healthcare is usually available at local community level✓, so that people do not have to travel far✓ to have their basic healthcare needs met.
Secondary facilities tend to be found in urban areas only✓.
Tertiary facilities may only be found in major metropolitan areas✓ where they may be linked to a medical school✓. Even in a major metropolitan area there might be only one or two facilities✓.
Quaternary facilities are centres of excellence✓; therefore, there may be only one quaternary facility in a country✓, or on an entire continent✓, that specialises in a condition✓.
Describe the factors which will determine how much an individual will need to fund their consumption in retirement. [6]
- The individual’s steady-state consumption level✓✓. Individuals who have become used to a certain standard of living may find it difficult to adjust to a lower consumption level after they have retired✓.
- How consumption patterns are likely to change as people get older✓✓.
- The uncertainty in consumption streams✓✓. Some payments—such as daily expenses✓—are certain while others—such as major medical expenses✓—are less predictable. These unpredictable payments can be made more predictable by using insurance✓, or through public provision of services✓, such as healthcare and long-term care✓.
Healthcare plans, may not cover all costs✓. Planning for out-of-pocket medical expenses is critical✓. - Investment Returns✓: The performance of your investments will impact how much you need to save. A higher return on investments can reduce the amount you need to save✓, while lower returns might increase it✓.
- Debt and Financial Obligations✓: Any remaining debt, such as mortgages or loans, and other financial obligations, such as supporting family members✓, will affect how much you need to save for retirement.
- Housing Costs✓: Whether you own your home outright or have a mortgage, housing costs (including property taxes, maintenance, and utilities)✓✓ need to be considered. Some may also plan to downsize or relocate to reduce these expenses✓✓.
- The timing of these payments✓. This involves predicting an individual’s retirement age✓, their expected lifespan✓, and the needs of their dependants✓.
- Once these expected cashflows have been estimated✓, they can be discounted✓ to calculate a present value of the accumulation required at retirement to fund consumption in retirement✓.
List the different behavioural biases.[2.5]
- Myopia ✓
- Loss aversion or prospect theory ✓✓
- Sunk cost fallacy ✓
- Hyperbolic discounting ✓
- The availability heuristic ✓
- Hindsight bias and law of small numbers ✓✓
- Framing effects ✓
- Complexity avoidance ✓
- Inertia ✓
List the main providers of healthcare. [2]
- Doctors ✓
- Nurses ✓
- Support medical personnel and clinical associates✓✓ (also known as allied health providers)✓
- Hospitals ✓
- Upstream service providers✓
- Pharmaceutical manufacturers✓
- Medicine distributers✓
- Suppliers of medical equipment✓
Identify the behavioural bias evident in the following behaviour:
i) A person prioritises take home pay over retirement income.
ii) The decrease in utility due to a loss is far greater than the increase in utility arising from a gain of the same value.
iii) People prioritise death benefits because they over-estimate their mortality rates.
iv) When there are too many choices, people opt for the default or make no decision at all.
v) People react differently to two pieces of communication depending on how the material is presented.
vi) Members do not increase their retirement fund contribution rates even when they can afford to do so, preferring to put it off. [2.25]
i) Myopia✓, caused by high subjective discount rates✓
ii) Loss aversion✓
iii) The availability heuristic✓
iv) Complexity avoidance✓
v) Framing✓
vi) Procrastination✓, caused by time-inconsistent✓ (potentially hyperbolic) subjective discount rates✓
List the factors that the cashflow needs in retirement should take into account. [1.5]
- Consumption and expenditure ✓
- Savings in retirement ✓
- Tax in retirement ✓
- Income versus lump sums ✓
- Retirement age versus retirement stage ✓
- Life expectancy at retirement ✓
Describe the consumption and expenditure cashflows during retirement. [1.5]
Expenditure✓ on daily cost of living✓, leisure✓, and healthcare costs✓ tend to increase at higher ages✓ and are subject to greater inflation risk✓.
Describe the Public sector healthcare services. [2]
Public sector healthcare services are generally subsidised✓ or offered for free at point of service✓ by the state✓.
Demand is usually high✓ and, as a result, public healthcare is often associated with poor service✓ and quality✓.
There is a large disparity in the perception of expertise and efficiencies between the private and public sectors✓✓, despite the existence of centres of excellence in the public sector✓.
State three advantages of private healthcare providers. [1.75]
Private healthcare providers alleviate pressure✓ from the burdened public sector✓ and provide facilities and services✓ that the public sector may struggle to provide due to competing priorities✓.
Increased competition✓ can lead to cheaper prices✓ and increased innovation✓.
Describe the social systems of social protection and social security. [2.5]
Social protection, such as healthcare and education✓✓, reduces vulnerability to risks✓ and adverse life events✓.
Social security focuses on benefits relating to unemployment✓, disability✓, old age✓, and other circumstances that lead to loss of income or economic hardship✓✓.
These systems are designed to smooth consumption✓ and provide a mechanism for redistribution✓.
List the criteria to evaluate social systems.[1]
Social systems are evaluated based on their adequacy, sustainability, and robustness.✓✓✓
Sustainability is particularly important.✓
Describe insurance intermediaries as a distribution channel. [1.5]
These are independent of any particular health and care insurance company.✓✓
They can advise their clients on the best contracts for their needs from among all the contracts available.✓✓
They may be remunerated by commission from the insurance companies whose products they sell or by fees from their clients.✓✓
Describe tied agents as a distribution channel. [2]
These are insurance intermediaries who offer the products of only one or a limited number of insurance companies.✓✓
If the tie is to more than one company, then usually the product ranges of the companies are mutually exclusive.✓✓
Typically, tied agents are financial institutions such as banks or building societies.✓✓
Tied agents are paid commission by the companies whose products they sell.✓✓
